EAST  ASIA  ECONOMY  SLOWING - ADB

MANILA, August 10, 2005
 (STAR) Economic growth in East Asia will remain robust but will slow down to 6.8 percent in 2005 due to a less favorable external environment, the Asian Development Bank (ADB) forecast yesterday.

This reduction from the gross domestic product (GDP) growth of 7.6 percent in 2004 was also attributed partly to oil prices reaching record highs this year, the ADB said in its Asia Economic Monitor report.

However, the ADB warned that the growth forecast was "subject to risks from further increases in oil prices and a disorderly adjustment of the global payments imbalance."

The report, released at the ADB headquarters in the Philippine capital, said that a "loss of economic momentum in major industrial markets," and a drop in demand for new information technology products were the main reasons for the worsening external economic environment.

The ADB noted that exports grew at a slower rate in the first half of 2005, in all of East Asia’s larger economies except China. This development, coupled with higher oil prices and "a general bias toward tighter macroeconomic policies," resulted in the slower growth in most of the region.

Excluding China, East Asia is expected to post average growth of 4.4 percent this year, compared to 5.5 percent growth last year, the ADB added.

China, however, will also see its growth slow down to 8.9 percent this year from 9.5 percent last year due to "a gradual softening of fixed investment... and somewhat diminished export prospects," the ADB added.

"We now face a backdrop of moderately slowing growth, a gradual build-up of inflationary pressures, and a tightening of US monetary policy," Pradumna Rana, an ADB senior director said in the report.

"The key challenge for East Asia is to calibrate fiscal, monetary, and exchange rate policies while at the same time pursuing structural reforms to strengthen domestic demand," he added. — AFP

More flexible exchange rate regimes seen in Asia after revaluations: ADB 08/09 5:02:24 PM

MANILA (AFP) - A revaluation of the Chinese and Malaysian currencies last month could lead to a "greater exchange rate flexibility" in the region, the Asian Development Bank (ADB) said in a report Tuesday.

While immediate impacts of the twin moves were too early to assess, the ADB said they were welcome moves that could have "profound economic implications" over the long-term, the Manila-based lender said.

By removing the fixed pegs of the yuan and ringgit, China and Malaysia now have greater freedoms in utilizing monetary policies to achieve domestic macroeconomic goals.

It would also lessen the need for "costly sterilization of foreign exchange inflows" by the two countries' central banks, the ADB noted.

Other countries in the region that were previously constrained from letting their currencies appreciate for fear of losing export competitiveness in the face of the yuan and ringgit's pegs to the dollar would also benefit, the ADB said.

"These measures by China and Malaysia would foster greater exchange rate flexibility in Asia as a whole," the ADB said.

China on July 21 announced that it was adopting a managed floating exchange rate regime based on market supply and demand. It effectively freed the yuan from an 11-year-old peg to the US dollar in favor of a trade-weighted basket of currencies.

Monetary authorities allowed the yuan to appreciate 2.1 percent to 8.11 to the greenback, but kept details of the currency basket unclear to thwart speculators.

Malaysia on the same day announced it would unhinge the ringgit's peg to the dollar.

Depending on the success of the revaluations, other countries in the region may be encouraged to do the same and laying the groundwork for "regional exchange rate coordination" in the future, the ADB said.


Reported by: Sol Jose Vanzi

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